Business Process Outsourcing

from Germany to India

Business Process Outsourcing from Germany to India
Dr Axel Funk, Partner, CMS Hasche Sigle, Stuttgart
Dr Gregor Zeifang, Rechtsanwalt, CMS Hasche Sigle, Stuttgart

Business Process Outsourcing (BPO) is a phenomenon which is becoming increasingly popular in German business.
Whereas at the beginning of the development outsourcing was still very much restricted to a company‘s infor-
mation technology, in the meantime more and more other business processes are being outsourced such as call
centre services, payroll, purchasing, human resources management, customer care, billing processes, etc. For Ger-
man companies it is particularly outsourcing to Eastern Europe or above all to India which is interesting because
the personnel costs are considerably lower than in Germany.

One main reason for a BPO from Germany to India is thus the expected cost advantage. However, there are also
other reasons for a BPO such as rationalisation and increased efficiency of business processes, utilisation of the
know-how of well-qualified specialists and the outsourcing company being able to concentrate on its key busi-
ness true to the motto: Do what you can do best – outsource the rest.

In addition to these opportunities there are, however, certain visions determining the subject of the agreement, i. e. the
risks with respect to a BPO from Germany to India. Some of business process being outsourced, project organisation,
these result from a possible language barrier which is often utilisation rights in work results, contractual term and termi-
more relevant in the case of a BPO than in classical IT out- nation, change management, claims for defects, liability, data
sourcing where English is the dominant language. In the protection, applicable law, etc. On the basis of the frame
case of other business processes such as human resources agreement a service agreement is usually concluded as an
management, however, this is different since the services individual agreement which contains, in particular, provisions
outsourced by a German company can often only be pro- regarding the duties of the outsourcing provider and coop-
vided in German. The cultural differences between India eration duties of the customer, service level agreements and
and Germany must also be taken into account and can lead remuneration. In a further individual agreement there are
to misunderstandings and friction in connection with the provisions on transition and transformation, i.e. transfer of
provision of the services. However, the cultural differences assets and agreements with third parties from the customer
are not only revealed when the outsourced services are pro- to the outsourcing provider and, where appropriate, provi-
vided but already when the agreements regarding a BPO sions regarding the transfer of personnel.
are concluded. Here it is not only the clearly differing interests
of principal and customer which collide but, with Indian law Applicable law
being marked by common law and German law by continen-
tal European law, also two very different legal traditions A German company which wants to outsource its business
processes to India will normally attempt to ensure that the
In order to give Indian service providers a precise overview of agreement is governed by German law by way of a choice
the legal approach of German companies which intend to of law. A German customer will only accept Indian law in
outsource business processes the following deals with the exceptional cases since it is foreign to the customer and – if it
expectations which German companies have of the nego- is going to outsource the management of the processes –
tiations and structure of a BPO agreement. wants at least to be familiar with the legal treatment thereof.
Indian outsourcing providers will therefore often need pro-
Modular construction of agreement fessional advice with regard to German law for negotiations
with German customers. A further consequence of the appli-
German companies are used to a complex construct such as cability of German law is that agreements are usually much
a BPO agreement being modularly constructed. This means shorter than agreements in the Indian legal circle since many
that on the one hand a frame agreement is concluded which issues are regulated by statute and only need to be illustrat-
contains general, comprehensive provisions which concern ed in the agreement if there is an intention to deviate from
all contractual components. These include, for example, pro- the statutory provisions.
Claims for defects and liability

From an agreement subject to German law German com- and use the personal data in the framework of the instruc-
panies expect to have extensive rights for defects in services tions of the principal, i.e. the outsourcing company. If the
of the outsourcing provider such as fee reduction and termi- personal data is to be transferred from Germany to India and
nation and they expect that the outsourcing provider will thus to a non-EU country for the transfer of data to be
be largely liable for any damage caused culpably. The German permissible either the consent of all persons concerned must
customer will therefore only rarely accept an extensive re- be obtained – which is usually not practical – or the BPO
striction of rights for defects and an extensive restriction or agreement must take account of the standard contractual
even partial exclusion of liability, e.g. for indirect damage and clauses for the transfer of personal data to a third country
consequential damage, such as lost profit. These liability pro- passed by the EU Commission.
visions show particularly clearly the differences between
Indian and German legal culture. Here – even if the negotia- Transfer of personnel
tions are difficult – a sensible compromise between the inter-
ests of the parties must be found which can be by way of Under German law a BPO often constitutes a transfer of
agreeing certain amounts as upper liability thresholds. business which means that the employment relationships of
the employees of the outsourcing customer which are allo-
Service level agreements cated to the outsourced part business are transferred to the
outsourcing provider. This legal consequence applies by virtue
A further important point is the agreement of service levels of law and cannot be contracted out of by the parties to a
and the legal consequences of non-achievement thereof. BPO agreement; however, the details of the applicability of
Here too customer and provider have different expectations the statutory regulation regarding the transfer of business
which can, however, be defused by way of a flexible contrac- and its legal consequences in the case of outsourcing abroad
tual structure. For example, the service levels can be restrict- are controversial. Even if applicability is assumed each em-
ed to certain key performance indicators or lower service ployee affected can object to the transfer of his employment
levels can be provided for a transitional phase after com- relationship within one month of being informed of the
mencement of the outsourcing. However, a German compa- transfer of business. In the case of a BPO from Germany to
ny will usually expect clear sanctions to be linked to non- India where the jobs really will be relocated to India, almost
achievement of service levels, in particular a penalty and in all employees will make such an objection since it will be
the case of serious or repeated breaches a right of termina- difficult to get them to move to India to carry out their former
tion for good cause. In return, however, a provision can be activity under an Indian employer. The German outsourcing
agreed according to which the outsourcing provider receives customer can then usually no longer employ the objecting
a bonus if it exceeds the service levels. employees because their activity has been outsourced in the
framework of the BPO. In many cases the employees can
Data protection law then be dismissed for operational reasons but this is not al-
ways possible.
In almost all cases of a BPO personal data of the customer is
processed by the outsourcing provider. The personal data Summary
can in particular be employee or customer data. The legal
requirements of the German Federal Data Protection Act The negotiation and structure of a BPO agreement between
must thus be observed. As a rule what is known as commis- a German company and an Indian outsourcing provider re-
sioned processing of data is agreed in the case of a BPO. quire a certain amount of time and accommodation by both
This means that the German customer remains the owner of parties. However, it is worth the effort because this is the
the data in a legal sense and is responsible for the legality only way that a BPO which is attractive financially to both
of the data processing by the Indian outsourcing provider. parties can be embedded in a clear and therefore also at-
However, the outsourcing provider may only collect, process tractive legal framework.

Visit us at www.cms-hs.com where you can find more information,

or contact us by Email at [email protected].
 Berlin Düsseldorf Frankfurt / Main
CMS Hasche Sigle CMS Hasche Sigle CMS Hasche Sigle
Lennéstraße 7 Bankstraße 1 Barckhausstraße 12–16
10785 Berlin 40476 Düsseldorf 60325 Frankfurt / Main
Tel.: + 49 (0) 30 / 2 03 60 - 0 Tel.: + 49 (0) 211 / 49 34 - 0 Tel.: + 49 (0) 69 / 7 17 01 - 0
Fax: + 49 (0) 30 / 2 03 60 - 20 00 Fax: + 49 (0) 211 / 49 200 - 97 Fax: + 49 (0) 69 / 7 17 01 - 40 410
Email: [email protected] Email: [email protected] Email: [email protected]

Hamburg Cologne Leipzig

CMS Hasche Sigle CMS Hasche Sigle CMS Hasche Sigle
Stadthausbrücke 1–3 Theodor-Heuss-Ring 19–21 Augustusplatz 9
20355 Hamburg 50668 Cologne 04109 Leipzig
Tel.: + 49 (0) 40 / 3 76 30 - 0 Tel.: + 49 (0) 221 / 77 16 - 0 Tel.: + 49 (0) 341 / 2 16 72 - 0
Fax: + 49 (0) 40 / 3 76 30 - 40 600 Fax: + 49 (0) 221 / 77 16 - 110 Fax: + 49 (0) 341 / 2 16 72 - 33
Email: [email protected] Email: [email protected] Email: [email protected]

Munich Stuttgart Chemnitz

CMS Hasche Sigle CMS Hasche Sigle CMS Hasche Sigle
Brienner Straße 11 / V Schöttlestraße 8 Hartmannstraße 7
80333 Munich 70597 Stuttgart 09111 Chemnitz
Tel.: + 49 (0) 89 / 2 38 07 - 0 Tel.: + 49 (0) 711 / 97 64 - 0 Tel.: + 49 (0) 371 / 3 69 74 - 0
Fax: + 49 (0) 89 / 2 38 07 - 110 Fax: + 49 (0) 711 / 97 64 - 900 Fax: + 49 (0) 371 / 3 69 74 - 21
Email: [email protected] Email: [email protected] Email: [email protected]

Dresden Belgrade Brussels

CMS Hasche Sigle CMS Reich-Rohrwig Hasche Sigle d.o.o. CMS Hasche Sigle
An der Dreikönigskirche 10 Cincar Jankova 3 Avenue Louise 200
01097 Dresden 11000 Belgrade 1050 Brussels
Tel.: + 49 (0) 351 / 826 44 - 0 Tel.: + 381 (0) 11 / 32 08 - 900 Tel.: + 32 (0) 2 / 65 00 - 420
Fax: + 49 (0) 351 / 826 47 - 16 Fax: + 381 (0) 11 / 30 38 - 930 Fax: + 32 (0) 2 / 65 00 - 422
Email: [email protected] Email: [email protected] Email: [email protected]

Moscow Shanghai
CMS Hasche Sigle GmbH CMS Hasche Sigle
ul. Ostoschenka, 23 2801–2812 Plaza 66, Tower 2
119034 Moscow 1366 Nanjing Road West
Tel.: + 7 495 / 7 97 90 70 Shanghai 200040
Fax: + 7 495 / 7 97 90 80 Tel.: + 86 (0) 21 / 62 89 - 63 63
Email: [email protected] Fax: + 86 (0) 21 / 62 89 - 07 31
Email: [email protected] www.cms-hs.com

CMS Hasche Sigle is one of the leading commercial law firms in Germany. Approximately 480 lawyers are active in
all of the important German commercial centres and in offices in Belgrade, Brussels, Moscow and Shanghai for our
clients.

CMS Hasche Sigle is a member of CMS, the alliance of major independent European law firms providing businesses
with legal and tax services across Europe and beyond. In addition, CMS firms offer access to market-leading services
in emerging markets, particularly Central and Eastern Europe and China. Operating in 48 business centres around
the world, CMS has over 595 partners, more than 2,000 legal and tax advisers and a total complement of over 4,200
CMS_HS_V.05-07

staff.

CMS member firms are: CMS Adonnino Ascoli & Cavasola Scamoni (Italy), CMS Albiñana & Suárez de Lezo (Spain),
CMS Bureau Francis Lefebvre (France), CMS Cameron McKenna LLP (UK), CMS DeBacker (Belgium), CMS Derks Star
Busmann (the Netherlands), CMS von Erlach Henrici (Switzerland), CMS Hasche Sigle (Germany) and CMS Reich-
Rohrwig Hainz (Austria).